September
2015 4 Investment Annuity
6 Conflicting Statutes
8 Restrictive Covenant
10 Message From the Editors
5 Billing Dispute
7 Rescission of Disability
9 Plan Fiduciary’s Claim
11 Continuing Breach Theory Rejected; Disability Benefits Claim Barred by Statute of Limitation
Not Exempt, and Cash Value of Life Insurance Not Fully Exempt, from Bankruptcy Estate
Between Patient and Hospital Preempted by ERISA
and Validity of STOLI Policies Certified to Florida Supreme Court
Policies Reversed Based on Ambiguous Questions in Applications
in Agent’s Contract Depends on Whether Customer Lists Constitute “Trade Secret”
against Attorneys for Equitable Relief Survives Motion to Dismiss
ERISA & LIFE INSURANCE NEWS
Covering ERISA and Life, Health and Disability Insurance Litigation
Courts Tackle Issues Left Unresolved by Heimeshoff v. Hartford At the very end of 2013, the Supreme Court in Heimeshoff v. Hartford Life & Accident Insurance Company, 134 S. Ct. 604 (2013), enforced a three-year contractual limitation period which commenced when the ERISA plan participant’s proof of disability was due. Recognizing that a cause of action does not accrue until the issuance of a final denial, the Court nonetheless ruled: “Absent a controlling statute to the contrary, a participant and a plan may agree by contract to a particular limitations period, even one that starts to run
before the cause of action accrues, as long as the period is reasonable.” 134 S. Ct. at 610. In Heimeshoff, approximately one year remained to file suit following the end of the administrative review process, allowing the Court to conclude that the limitation provision was “reasonable.” Responding to concerns regarding the effect of a lengthy administrative review period on the running of such a limitation period, the Court reasoned that “in the rare case where internal review prevents participants from bringing § 502(a) (1)(B) actions within the contractual period, courts are well equipped to apply traditional doctrines that may nevertheless allow participants to proceed.” 134 S. Ct. at 615. The Court specifically suggested “waiver or estoppel” where the
administrator’s conduct caused the participant to miss the lawsuit deadline, and “equitable tolling” in the event that “extraordinary circumstances” prevented the timely filing of a suit. The Court did not directly address related scenarios, such as when a disability claim has been paid through the entire contractual limitation period and only thereafter denied, leaving the participant with no recourse if the plan terms are applied literally. Similarly, and although it was an issue in the district court, the Court did not address the extent to which a plan administrator must notify the participant (beyond the notice provided by the plan documents themselves) of the contours of any applicable contractual limitation provision. >>
In the nearly two years since Heimeshoff, those issues and others have percolated in the lower courts.
The Impossibility Scenario One obvious dilemma arising out of Heimeshoff was how to apply a contractual limitation provision where the limitation period had expired by the terms of the plan before a benefits claim had been denied. Heimeshoff emphasized fidelity to the terms of a written ERISA plan. Yet, in this scenario, such fidelity would lead to an unintended and untenable result. A very similar issue was confronted squarely by the Northern District of Illinois, in an unpublished decision in Nathan v. Unum Life Insurance Company of America, Case No. 13-cv-8706 (N.D. Ill. Jun. 25, 2014). There, the disability plan contained a three-year deadline for legal actions measured from the date that proof of claim was required. The participant’s claim arose in July 2005, and he was paid benefits until his claim was denied on May 29, 2008. The participant appealed administratively and the final decision upholding the denial was issued on June 18, 2009. The participant filed suit on December 5, 2013.
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The parties agreed that proof of claim had been due no later than March 19, 2006. The parties also agreed that the participant could not have sued within three years of that date because internal remedies were not exhausted until June 18, 2009. The plaintiff asserted that the contractual provision was thus unenforceable, and that a tenyear Illinois statute of limitation for contract actions should apply. Unum argued that the Court should look to federal common law, and that the plan’s contractual limitation provision should simply be tolled until the final decision was issued.
The court agreed with Unum: “[T]he Plan’s three-year limitations provision should be applied to Plaintiff’s claims, with an accrual date tolled to when Plaintiff received Defendants’ final decision on June 18, 2009.” Slip op., p. 7. Adopting the plaintiff’s argument “would result in a distinction between employees who were denied benefits initially and those who were initially awarded benefits but were later denied: the former would be limited under the Plan to three years to bring suit, while the latter would get ten years to institute an action,” the court continued. Id. at 8. “This interpretation,” the court wrote, “runs afoul of the Supreme Court’s instruction in Heimeshoff that the plan’s terms be enforced.” Id. The court concluded: “Plaintiff was on notice from the Plan that he needed to file within three years of some date. It is therefore reasonable and equitable to impose a three-year deadline from the date Plaintiff received notice of the Plan’s final decision – in other words, the last possible date for Plaintiff’s claim to accrue.” Id. at 8-10. While benefits were terminated in Nathan within three years from the date that proof of loss was due, the same commonsense approach would be equally applicable to lawsuits brought to recover benefits denied long after the original limitations period would have ended, absent equitable tolling. That some tolling will have to be contemplated in these circumstances is further illustrated by Nelson v. Standard Insurance Company, 2014 WL 4244048 (S.D. Cal. Aug. 26, 2014), where the court declined to enter judgment on the pleadings for the insurer based on the asserted limitation period,
which ended five months before the date of the final denial letter.
Notice Concerns Another interesting issue that remains in play after Heimeshoff is whether ERISA requires the plan administrator to remind the participant of the deadline for filing a lawsuit at the time of claim denial (or subsequent affirmance on administrative appeal). In the district court, Heimeshoff argued that Hartford had been obligated to give notice of the limitations period in its denial letter and that its failure to do so precluded the company from raising the time bar. The district court disagreed, noting that ERISA claims regulations (29 C.F.R. § 2560.503-1) required a statement of the claimant’s right to bring a civil action, but said “nothing about time limits with respect to civil actions ....” 2012 WL 171325, at *6 (D. Conn. Jan. 20, 2012). Moreover, “[a] civil action seeking remedies under the plan is a separate and distinct review process from those contemplated in the claim proceedings under a benefits plan,” the court added. Id. The Second Circuit concluded that it did not need to address the issue since Heimeshoff’s counsel had “conceded in the district court and at oral argument that he had received a copy of the plan containing the unambiguous limitations provision long before the three-year period for [Heimeshoff] to bring the claim had expired.” 496 F. App’x 129, 130-31 (2d Cir. Sept. 13, 2012). As a result, the appellate court held, Heimeshoff was “not entitled to equitable tolling.” Id. at 131. The issue did not make an appearance in the Supreme Court’s opinion. Subsequent decisions continue to reveal a split on the
issue. Most prominently, a divided panel of the Sixth Circuit concluded in Moyer v. Metropolitan Life Insurance Company, 762 F.3d 503, 507 (6th Cir. 2014), that under ERISA’s claims regulations the “claimant’s right to bring a civil action is expressly included as a part of those procedures for which applicable time limits must be provided.” The failure of the insurer to include the “judicial review time limits” in the denial letter was “inconsistent with ensuring a fair opportunity for review and rendered the letter not in substantial compliance,” the court wrote. The appropriate remedy, the court concluded, was to remand to the district court “so that [plaintiff] may now receive judicial review.” Id.; See also Russell v. Catholic Healthcare Partners Employee Long Term Disability Plan, 2015 WL 3540997 (6th Cir. June 8, 2015). In Kienstra v. Carpenters’ Health and Welfare Trust Fund of St. Louis, 2014 WL 562557 (E.D. Mo. Feb. 13, 2014), aff’d, 2015 WL 3756712 (8th Cir. June 17, 2015), the plan administrator included language in the final denial letter which advised of the timeframe for filing a lawsuit. In upholding the twoyear contractual limitation period, the court remarked (in probable dicta) that the claims regulation required the administrator “to advise Plaintiff of the two year limitation period in the letter in which Defendant advised Plaintiff that it had completed an internal administrative review of her claim for benefits.” 2014 WL 562557, at *4. See also Bell v. Xerox Corp., 52 F. Supp. 3d 498 (W.D.N.Y. 2014) (appearing to favor the view that the initial claims denial letter should include notice of the contractual period of limitation). Most recently, the Third Circuit set aside a plan’s one-year time
limit where the benefit denial letter failed to mention it. Mirza v. Ins. Adm’r of Am. Inc., 2015 WL 5024159 (3rd Cir. Aug. 26, 2015). The courts in several cases decided after Heimeshoff, however, have rejected the view that the ERISA claims regulations require notice of contractual limitation periods. See, e.g., Armstrong v. Hartford Life & Accident Ins. Co., 63 F. Supp. 3d 1191 (E.D. Cal. 2014); Freeman v. American Airlines, Inc. Long Term Disability Plan, 2014 WL 690207, at *5 (C.D. Cal. Feb. 20, 2014); Wilson v. Standard Ins. Co., 2014 WL 358722, at *9 (N.D. Ala. Jan. 31, 2014), aff’d, 2015 WL 3477864 (11th Cir. June 3, 2015); Almont Ambulatory Surgery Center, LLC v. United Health Group, Inc., 2015 WL 1608991 (C.D. Cal. Apr. 10, 2015). Nor does an insurer or plan administrator waive a limitations defense merely by advising a participant of his or her right to bring a civil action, as required by the claim regulation. Upadhyay v. Aetna Life Ins. Co., 2014 WL 883456 (N.D. Cal. Mar. 3, 2014). Rejecting that waiver argument, the court in Upadhyay emphasized that the statement “was necessary for Aetna to comply with 29 C.F.R. § 2560.503-1(j)(4),” and that the “letter does not state that if plaintiff decides to bring that action, Aetna will waive its defenses to that action.” 2014 WL 883456, at *5.
Reasonableness of Limitation Period Finally, in the aftermath of Heimeshoff, there have been relatively few decisions addressing the reasonableness of timeframes of less than one year. Indeed, the Supreme Court predicted as much, noting that “the cases in which internal review leaves participants with less than one year to file suit are rare.” Heimeshoff, 134 S. Ct. at 615.
In Tumiello v. Aetna Life Insurance Company, 2014 WL 572367, at *2 (S.D.N.Y. Feb. 14, 2014), the court found that a nine-month period between the final denial letter and the end of the limitations period was “not an unreasonably short period of time within which to file suit.”; See also Barriero v. NJ Bac Health Fund, 2013 WL 6843478, at *4 (D.N.J. Dec. 27, 2013) (“The Court sees no reason why this nine-month period of time did not provide Barriero with ample opportunity to seek judicial review and vindicate her rights under ERISA.”). In Lundsten v. Creative Community Living Services, Inc. Long Term Disability Plan, 2015 WL 1143114 (E.D. Wis. Mar. 13, 2015), the court found that a six month period was reasonable. See also Santana-Diaz v. Metro. Life Ins. Co., 2015 WL 317194 (P.R. Jan. 23, 2015) (finding lawsuit time barred where six months remained after final denial letter); University of Wisconsin Hosp. and Clinic Authority v. Southwest Catholic Health Network Corp., 2015 WL 402739 (W.D. Wis. Jan. 28, 2015) (six month period not unreasonable).
Conclusion Following the Supreme Court’s unanimous decision in Heimeshoff, the lower courts have readily enforced contractual limitations provisions, even where the amount of time remaining after administrative review is measured in months, not years. The courts remain somewhat divided, however, concerning whether a plan is obligated to remind participants of the contractual limitation period in the adverse benefit determination letter. In those jurisdictions finding such an obligation, the failure to include that language in the denial letter may preclude the ability to enforce the limitations provision.
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Investment Annuity Not Exempt, and Cash Value of Life Insurance Not Fully Exempt, from Bankruptcy Estate In re McFarland, 790 F.3d 1182 (11th Cir. 2015)
McFarland filed bankruptcy and sought to exempt from the bankruptcy estate an annuity and the cash value of a life insurance policy. The Trustee objected. The annuity was purchased in 2006 when McFarland was 64 years of age. It was funded by the transfer of $150,000 from a mutual fund. McFarland’s wife was designated as sole beneficiary. The commencement date for payments under the annuity was January 15, 2032. The whole life insurance policy was taken out by McFarland in 1984 and had a cash value of approximately $15,000. Under Georgia law, a bankruptcy debtor may exempt “[a] payment under a pension, annuity, or similar plan or contract on account of illness, disability, death, age or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.” O.C.G.A. § 44-13-100(a)(2)(E). Further, a bankruptcy debtor may exempt his or her “aggregate interest, not to exceed $2000.00 in value, ... in any accrued dividend or interest under, or loan or cash value of, any unmatured life insurance contract ....” Id., § 44-13-100 (2)(9).
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The bankruptcy court concluded that the annuity did not qualify for exemption “because it was structured more like a future investment than a substitute for wages.” This was evidenced by the fact that McFarland had not withdrawn money from the annuity and acknowledged that he had no intention to do so until 2032, when he would be 90 years of age. The Georgia Supreme Court, in construing the pertinent exemption, had ruled that “in deciding whether a particular annuity is of the type intended to come within the ... exemption, the pertinent question is whether it provides income as a substitute for wages.” Quoting Silliman v. Cassell, 292 Ga. 464, 738 S.E.2d 606, 610 (2013). The Eleventh Circuit found the bankruptcy court’s reasoning “sound” and the findings “not clearly erroneous.” McFarland has “never withdrawn any money from his Annuity and had no real plans to do so,” the court wrote. By contrast, in Silliman, where the annuity was found to qualify for exemption, the debtor had “purchased the annuity to replace her income ... at the time of the purchase,” and already was receiving payments when she filed bankruptcy. Id. at 611.
As to the life insurance policy, McFarland relied on an additional non-bankruptcy provision of Georgia law which provided that “[t]he cash surrender values of life insurance policies ... shall not in any case be liable to attachment, garnishment, or legal process in favor of any creditor of the person whose life is so insured ....” O.C.G.A. § 33-25-11(c). Based on that statute, McFarland argued that his exemption should not be limited to $2,000. The bankruptcy court concluded that the exemption was limited to $2,000, and the Eleventh Circuit affirmed. Under Georgia law, “a specific statute will prevail over a general statute, absent any indication of a contrary legislative intent.” As a result, the specific bankruptcy statute controlled, limiting the exemption to $2,000. There was no evidence that the passage of the general insurance statute, O.C.G.A. § 33-25-11(c), was intended by the Georgia legislature to amend the bankruptcy provision. The Eleventh Circuit also rejected constitutional challenges to the $2,000 limit. “Although Georgia treats bankruptcy debtors differently than other debtors, this distinction does not violate Georgia’s Equal Protection
Clause because it is rational and relates directly to the purpose of bankruptcy legislation,” the court wrote. “[B]ecause bankruptcy allows debtors to wipe their financial slate entirely clean, it is plausible that Georgia requires bankruptcy debtors to sacrifice more of their penumbral property
(e.g., a life insurance policy) in order to obtain greater relief on property more central to a ‘fresh start’ (e.g., a homestead exemption),” the court concluded. Finally, the Eleventh Circuit held that the Georgia statute did not violate the Bankruptcy Clause of
Billing Dispute Between Patient and Hospital Preempted by ERISA WakeMed, a hospital system, provided medical services to plaintiff Southern after Southern was struck by a car. At the time of the accident, Southern was a participant in an employer-provided healthcare plan insured by Blue Cross Blue Shield of North Carolina. In an amended complaint, Southern alleged that WakeMed improperly billed him for services and thus breached the terms of the plan and a separate Preferred Provider Agreement between WakeMed and Blue Cross.
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After WakeMed removed the case to the federal court, Southern moved to remand to state court. Southern argued the case was predicated on a mere billing dispute between him and the hospital system and was governed by state law. The court denied Southern’s
the United States Constitution and that “states are authorized by statute and permitted by the Constitution to distinguish between bankruptcy and nonbankruptcy debtors in crafting bankruptcy exemptions.”
Southern v. WakeMed, No. 5:15-cv-35-FL (E.D.N.C. Apr. 21, 2015) (unreported)
motion, finding that the allegations in his amended complaint sought relief under a plan governed by ERISA and were therefore preempted by ERISA § 502(a), 29 U.S.C. § 1132(a). The court found that Southern’s breach of contract claim related to his plan and fell within the scope of § 502 because he sought to recoup health insurance benefits available to him. His amended complaint alleged that WakeMed was bound by his plan, that WakeMed wrongfully attempted to collect payments from him in violation of the plan, and that WakeMed’s failure to bill him consistent with the plan was a breach of contract. Thus, “the rights guaranteed to Plaintiff by his ‘Health Benefits Plan,’ including the rates at which [he] is to be charged for treatment, are derived from
rights and obligations established by [his] ERISA-governed healthcare plan.” Southern also argued that WakeMed could not be sued under ERISA § 502(a)(3) in light of Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000), which addressed the universe of potential defendants that may be sued under § 502(a)(3). The court rejected Southern’s argument, finding that Harris Trust should not be construed to limit claims under § 502(a)(3) against non-fiduciaries – such as WakeMed – who had agreed to be bound by the terms of an ERISA-governed plan. After the court denied Southern’s motion to remand, Southern filed a notice of voluntary dismissal.
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Conflicting Statutes and Validity of STOLI Policies Certified to Florida Supreme Court Pruco Life Ins. Co. v. Wells Fargo Bank, N.A., 780 F.3d 1327 (11th Cir. 2015)
Pruco sought to invalidate two stranger-originated life insurance policies several years after they were issued. On appeal, the Eleventh Circuit consolidated the two cases, because they involved conflicting Florida statutes.
policy that has been “in force.” With no party having a valid insurable interest, the court concluded that the policy was never “in force,” and the two-year contestability period was not an obstacle to Pruco’s effort to invalidate the policy.
Pruco relied on a Florida statute requiring a person who procures life insurance to have an insurable interest in the life of the insured at the inception of the policy. Fla. Stat. § 627.404 (2008). Undermining Pruco’s argument, however, was another Florida statute requiring all insurance policies to include a clause providing that the policy is incontestable after it has been “in force” for two years. Fla. Stat. § 627.455 (1982). The cases were decided by two federal district courts, which issued conflicting decisions.
In the other case, the court took a different view, concluding that Pruco’s tardy insurableinterest claim was barred by the incontestability provision required by § 627.455. Pruco Life Ins. Co. v. U.S. Bank, 2013 WL 4496506, at *2, *5 (S.D. Fla. Aug. 20, 2013). The court likened § 627.455 to a statute of limitations that applies regardless of the basis of any challenge to the validity of the policy.
In one case, the court held that the STOLI policy was void ab initio because it violated the insurable interest statute. Pruco Life Ins. Co. v. Brasner, 2011 WL 134056 (S.D. Fla. Jan. 7, 2011). A contract that is void ab initio is one that never existed, the court reasoned. Thus, the two-year incontestability provision required by § 627.455 never took effect, because the incontestability period applies only to an insurance
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In reviewing cases from other jurisdictions, the Eleventh Circuit noted that the Brasner decision represents the majority view that a statute requiring an insurable interest at a policy’s inception takes precedence over a statute making a policy immune from challenge after a designated period of time. See, e.g., W. Reserve Life Assur. Co. of Ohio v. ADM Assocs., LLC, 737 F.3d 135, 143 (1st Cir. 2013); PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Trust, 28 A.3d 1059, 1067 n.18 (Del. 2011).
However, there exists support for the minority view as well. Courts in New York and Michigan have held that the lack of an insurable interest renders an insurance policy merely voidable, not void ab initio. See New England Mut. Life Ins. Co. v. Caruso, 73 N.Y.2d 74 (1989); Bogacki v. Great-West Life Assur. Co., 234 N.W. 865, 865-67 (Mich. 1931); cf. Equitable Life Assur. Soc. of U.S. v. Poe, 143 F.3d 1013, 101920 (6th Cir. 2013) (acknowledging that Michigan strictly construes incontestability clauses). Determining that Florida law embraces both the public policy that prohibits an insurance company from contesting a policy after the contestability period has expired, as well as the public policy that an insurable interest is necessary for an insurance policy to be valid, the Eleventh Circuit certified the issue to the Supreme Court of Florida.
Rescission of Disability Policies Reversed Based on Ambiguous Questions in Applications Certain Underwriters at Lloyd’s v. Cohen, 785 F.3d 886 (4th Cir. 2015)
In April 2011, Dr. Cohen, a general surgeon, submitted several applications for disability insurance to a broker authorized by Certain Underwriters at Lloyd’s of London to enter into insurance contracts on their behalf. The applications included the following questions and Dr. Cohen’s responses: Are you actively at work? Yes. Are you aware of any fact that could change your occupation or financial stability? No. Are you party to any legal proceeding at this time? No. Several days after submitting the applications, Dr. Cohen signed a consent order with the Maryland State Board of Physicians, which suspended his license to practice medicine in Maryland. The consent order provided that Dr. Cohen’s suspension would begin on August 2, 2011, and continue for three months. Dr. Cohen agreed to wind down his practice, to refer all patients to other doctors during the three months prior to his suspension, and to provide the Board with 60 days’ notice if he intended to become clinically active after the suspension.
One month after the disability policies went into effect, Dr. Cohen sought treatment for injuries sustained in a fall, and his insurance agent notified the Underwriters of a possible claim. When an investigation disclosed the consent order, the Underwriters notified Dr. Cohen of their intent to rescind the policies.
With respect to the first question, the court noted that the application did not define “actively at work,” did not limit its inquiry to Maryland work, and did not require performance of the specific “daily duties” an applicant might have listed in the limited space available for that response.
In a declaratory judgment action, the Underwriters asserted that Dr. Cohen made material misrepresentations authorizing rescission of the policies. Dr. Cohen countered that he was “actively at work” during his suspension, because he was a licensed surgeon in the District of Columbia, and he continued to perform duties related to his Maryland practice, including administrative work, research, and professional development. The district court granted summary judgment for the Underwriters.
With respect to the second question, the court noted that Dr. Cohen’s suspension was temporary, and because he could still practice in the District of Columbia, his “occupation” as a “surgeon” was not in danger of changing. Moreover, the application did not define “financial stability” or provide guidance on how an applicant could determine whether his financial stability could change. “Financial stability” could refer to net worth, and the record indicated that Dr. Cohen’s net worth apparently increased during his suspension.
The Fourth Circuit reversed, finding ambiguities in each of the application questions. The court concluded that the questions contained undefined terms susceptible to more than one reasonable interpretation, making them ill-suited to elicit the specific information the Underwriters claimed to have requested.
The court found ambiguity in the third question, as the application did not define “legal proceeding.” Dr. Cohen was represented by counsel before the Board, and the consent order he signed was a legal document. Nonetheless, the court found that a person subject to a Board proceeding might conclude that, by agreeing to the >>
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suspension of his medical license, he would avoid a legal proceeding. The court remanded the case to the district court to decide whether extrinsic or parol evidence could
cure the ambiguities. The court further held that the consent order was not admissible under Maryland law absent Dr. Cohen’s consent. According to the court, “[b]arring the admission of board disciplinary
orders in later civil and criminal actions encourages physicians to cooperate during board proceedings.”
Restrictive Covenant in Agent’s Contract Depends on Whether Customer Lists Constitute “Trade Secret” Holland Ins. Group, LLC v. Senior Life Ins. Co., 329 Ga. App. 834, 766 S.E.2d 187 (2014)
Holland, an insurance agent, entered into a contract with Senior Life in 2002 under which he was authorized to solicit applications for insurance as an independent agent. Holland was paid commissions based on premiums received by Senior Life for the policies he sold. Senior Life terminated the contract in 2011 and notified Holland that it was suspending the payment of commissions, pending an investigation of whether Holland had violated restrictive covenants in the contract. Holland sued, seeking injunctive relief and a declaratory judgment that the restrictive covenants were overbroad and unenforceable. Holland filed a motion for judgment on the pleadings, which was denied.
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Senior Life filed a counterclaim, seeking a preliminary injunction for the return of confidential documents, including applications for insurance and information about prospective customers, and to prevent Holland and his subagents from using that information
after the termination of his contract. The trial court granted the injunction in an order consisting of a single sentence, and Holland appealed. Section 5.5 of the Holland’s contract, entitled “Confidentiality,” defined “Confidential Proprietary Information” to include “certain lists of or data relating to our Customers and Prospective Customers,” and provided that Senior Life “take[s] all reasonable steps necessary to ensure that each and every component of the Confidential and Proprietary Information constitutes a ‘Trade Secret.’” Holland contended that the “Confidentiality” provision was void because it did not contain a time limit, and that the information sought to be protected did not constitute a “Trade Secret.” It was undisputed that Section 5.5 did not contain a time limit. But the court of appeals had held in earlier cases that “[a] nondisclosure clause with no time limit is
unenforceable as to information that is not a trade secret.” See, e.g., Allen v. Hub Cap Heaven, Inc., 225 Ga. App. 533, 539, 484 S.E.2d 259 (1997) (emphasis added). “[T]hus,” the court said, “whether or not Section 5.5 is overly broad and unenforceable hinges upon whether the ‘Confidential and Proprietary Information’ it prohibits disclosing constitutes a trade secret.” O.C.G.A. § 10-1-761(4) defines a “Trade Secret” to include “a list of potential customers or suppliers which is not commonly known by or available to the public.” Because “customers are not trade secrets,” confidentiality is enforced “only where the customer list is not generally known or ascertainable from other sources and was the subject of reasonable efforts to maintain its secrecy.” Crews v. Roger Wahl CPA, P.C., 238 Ga. App. 892, 898 n.4, 520 S.E.2d 727 (1999). The court of appeals held that additional facts, beyond those disclosed by the pleadings, were needed to determine whether
Senior Life’s customer lists constituted “a legitimate trade secret or merely confidential information relating to its business.” Therefore, the trial court properly denied Holland’s motion for judgment on the pleadings as to the enforceability of Section 5.5 of his contract. Section 5.7 of the contract, entitled “Damages,” required, “with respect to any Customer of ours who completely severs his/her relationship with us in favor of you,” that Holland would pay Senior Life “an amount equal to 100% of the commissions you earned … from us with respect to the Severing Customer during the twenty-four
(24) month period immediately preceding the termination of this Agreement.” This provision was applicable to customers who terminated their policies “without any direct or indirect solicitation by you.” The court of appeals held that because Section 5.7 “penalizes Holland from accepting the unsolicited business from Senior Life’s former clients, regardless of who initialed the contact, it is unreasonable and unenforceable.” Because the contract included a severability clause, however, the void restrictive covenant in Section 5.7 did not invalidate the entire contract.
Finally, the court of appeals affirmed the trial court’s order requiring Holland to return confidential documents, including insurance applications and “leads” to potential customers provided by Senior Life. The court held that the potential of irreparable injury was demonstrated by Senior Life’s allegations that Holland and his sub-agents had “falsified insurance applications in order to hide the replacement of Senior Life policies, engaged in the illegal process of ‘switching’ and ‘cross-selling,’ and lied to current policy holders by informing them that Senior Life was going out of business.”
Plan Fiduciary’s Claim against Attorneys for Equitable Relief Survives Motion to Dismiss Barnhill Contracting Co. v. Oxendine, 2015 WL 2227848 (E.D.N.C. May 12, 2015) Oxendine was a participant in the Barnhill Contracting Company Employee Health Plan, an ERISA plan. She was injured in an automobile accident, and payments were made under the plan for her treatment. Oxendine retained attorney Bain, whose law firm sued the persons responsible for the accident. Barnhill Contracting, as plan administrator and fiduciary, gave notice to Bain of its right to subrogation and reimbursement under the terms of the plan with respect to any monetary recovery received from the third-party tortfeasors. Nonetheless, without notice to the plan, Oxendine settled her claims against the tortfeasors. Bain did not acknowledge the
plan’s claim for reimbursement. Barnhill Contracting brought an action against Oxendine and the Bain defendants under ERISA for a declaratory judgment as to the plan’s right to reimbursement from the funds recovered from the tortfeasors. Barnhill Contracting also asserted state law claims for interference with contract and for conversion. The Bain defendants filed a motion to dismiss all claims against them. The district court granted the motion in part and denied it in part. As to the ERISA claim for equitable relief, the Bain defendants argued that “an attorney’s disbursing of settlement funds to a plan >>
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participant, even where the attorney has knowledge of a plan’s claim, is insufficient to state a claim for equitable relief under ERISA.” The Bain defendants relied on two earlier cases from the Eastern District of North Carolina, T.A. Loving Co. v. Denton, 723 F. Supp. 2d 837 (E.D.N.C. 2010), and Great-West Life & Annuity Ins. Co. v. Bullock, 202 F. Supp. 2d 461 (E.D.N.C. 2002). The district court declined to follow those decisions, noting that “defendants’ suggestion that they deserve special treatment under ERISA because they are attorneys is misplaced.” Rather, “[l]ike any other non-parties to an ERISA plan, they may be subject to an action for equitable relief where the requirements for such relief are met.” The district court also noted that several circuit courts of appeals have “uniformly allowed equitable relief against third parties in
circumstances analogous to the present case.” For example, in AirTran Airways, Inc. v. Elem, the Eleventh Circuit “allowed a plan to seek reimbursement against an attorney that held settlement funds subject to a plan’s equitable lien, holding that when the plan trustee ‘transferred the trust property to [the attorney and his law firm], the attorneys took the property subject to the trust, unless they purchased the property for value and without notice of the fiduciary’s breach of duty.’” Quoting Elem, 767 F.3d 1192, 1199 (11th Cir. 2014). “In sum,” the court held, “the overwhelming weight of Supreme Court and other circuit court authority supports the availability of a claim for equitable relief against the Bain defendants, where plaintiff seeks a declaration as to its reimbursement and recovery rights under the Plan for specifically identifiable funds – the settlement proceeds up to the amount of … medical benefits paid – in the
MESSAGE FROM THE EDITORS
Sanders Carter
Kent Coppage
Andrea Cataland
OTHER CONTRIBUTORS TO THIS ISSUE
Manning Connors
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Mary Ramsay
Peter Rutledge
possession and control of the Bain defendants, where it is alleged that the Bain defendants had notice of the plan’s subrogation to defendant Oxendine’s rights of recovery.” As a result, the court denied the Bain defendants’ motion to dismiss the ERISA claim. On state law grounds, the district court dismissed the interference with contract claim, finding that the complaint did not allege that the Bain defendants “directed or induced defendant Oxendine to withhold funds from plaintiff, attempted to conceal funds from plaintiff, or otherwise allege conduct that is intentionally tortious in nature.” The court denied the motion as to the conversion claim because Oxendine’s allegation that defendants had possession of the funds was “contrary to plaintiff’s asserted equitable lien over a portion of such funds, and thus unauthorized ….”
Please mark your calendars for the ABA/TIPS Mid-Winter Symposium on Insurance and Employee Benefits to be held January 14-16, 2016, at the Hyatt Regency on Clearwater Beach, Florida. The symposium is a great opportunity to earn CLE credits, while mingling in a beautiful setting with colleagues in the life, health, and disability insurance arena. The symposium is co-sponsored by the Life Insurance Law Committee, the Employee Benefits Committee, the Health and Disability Insurance Law Committee and the Insurance Regulation Committee. The program will be led by Kent Coppage, who serves as Chair of the Life Insurance Law Committee.
Continuing Breach Theory Rejected; Disability Benefits Claim Barred by Statute of Limitation Curry v. Trustmark Ins. Co., 600 F. App’x 877 (4th Cir. 2015) Curry, who owned a chiropractic practice, was insured by a disability policy issued by Trustmark. The policy provided a monthly benefit if disability prevented Curry from working as a chiropractor. The policy also required Curry to submit continuing proof of loss and, if requested, to submit to an independent medical examination. Curry injured his back in 2003 and underwent spinal cord surgery. He applied for disability benefits in early 2004. Trustmark paid benefits for the next three years, subject to Curry’s submission of information regarding his injury. The information provided by Curry was inconsistent in some respects, and incomplete in others. In 2007, Trustmark discontinued the payment of benefits until it received information it had requested. During the next year, Trustmark and Curry exchanged correspondence, and Trustmark paid benefits for an additional three months. After Curry refused to undergo an IME, Trustmark denied additional benefits, effective in June 2008, and closed Curry’s claim in September 2008. In July 2011, Curry sued Trustmark, alleging breach of contract. Trustmark moved for summary judgment, relying on Maryland’s threeyear statute of limitation. The district court held that Curry’s cause of action for breach of con-
tract had accrued anew each month when benefits were not paid. Consequently, the court concluded that the three-year statute of limitation only barred Curry’s claim for benefits between September 2007 and July 2008. The court addressed on the merits the claim for benefits after July 2008. Because Curry did not comply with Trustmark’s requirements that he submit to an IME and provide continuing proof of loss, the district court granted summary judgment to Trustmark. On appeal, Curry contended that his disability policy should be thought of as an installment contract, and that for purposes of the statute of limitation there was a new breach each month benefits were not paid. The district court agreed, but the Fourth Circuit reversed, noting that in the tort context, “a similar theory does not apply to the continuing effects of a single earlier act,” citing MacBride v. Pishvaian, 937 A.2d 233, 240 (Md. 2007). The court noted that both the Tenth and Eleventh Circuits have rejected the idea that disability policies are installment contracts giving rise to continuing breaches for each unpaid monthly benefit, citing Lang v. Aetna Life Ins. Co., 196 F.3d 1102, 1105 (10th Cir. 1999), and Dinerstein v. Paul Revere Life Ins. Co., 173 F.3d 826, 828 (11th Cir. 1999).
The Fourth Circuit held that the three-year statute of limitation began to run in June 2008, when Trustmark stopped paying benefits. Curry argued in the alternative that the statute did not begin to run until Trustmark closed his claim in September 2008. Curry relied on Vigilant Ins. Co. v. Luppino, 723 A.2d 14, 15 (Md. 1999), involving an insurer’s denial of its duty to defend. The court distinguished that case, because the duty to defend is a “continuing one,” such that the statute only began to run from the time the duty could be completed ‒ in that case, at the end of the underlying lawsuit. The court also rejected the argument that the discovery rule should have tolled the statute of limitation. Curry argued that even if his cause of action arose when Trustmark stopped paying benefits, he was not aware of the breach until Trustmark closed his claim in September 2008. However, by Curry’s own admission, he believed that Trustmark had breached the contract when it stopped paying benefits, and Curry did not dispute his receipt of Trustmark’s June 2008 letter, denying additional benefits until Curry produced proof of continuing loss. The court held that those facts established that Curry both knew and should have known of any alleged wrong before July 2008.
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